Why are farmers in the red? According to the study, only subsidies and Brussels are to blame

Why are farmers in the red? According to the study, only subsidies and Brussels are to blame
Why are farmers in the red? According to the study, only subsidies and Brussels are to blame
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From the statements of farmers, it sometimes seems that the main source of problems in agriculture are government changes in subsidy policy. A study by the Institute of Agricultural Economics and Information (ÚZEI) refutes this assumption.

As recently as January 2024, Minister of Agriculture Marek Výborný (KDU-ČSL) admitted possible changes in the so-called redistribution payment. This subsidy principle, which transferred money from large farms to smaller ones, became one of the symbols of resistance to the government’s agricultural policy.

The fact is that the redistribution, but also the cut of national subsidies by CZK 2.5 billion last year, contributed to the biggest change in the distribution of subsidy income in many years. In 2023, enterprises with more than two thousand hectares worsened by CZK 2,638 per hectare, and on the other hand, “small” farms of up to one hundred hectares improved by an average of CZK 2,044.

Photo: Institute of Agricultural Economics and Information.

The impact of subsidy cuts on farms of different sizes.

In the end, however, the state did not make changes in redistribution and came up with a set of other measures to help farmers in crisis. One of the reasons is the now published ÚZEI study, which deals with the economic situation of businesses. It is based on the accounting data of a representative sample of a total of 1,500 agricultural enterprises.

For example, the study states that the main reason for the decrease in subsidy income in 2023 compared to the monitored period from 2017 to 2021 was the strengthening of the koruna against the euro. The exchange rate of the crown to the euro increased from CZK 26.50 to CZK 24.46. The Czech currency benefited from the so-called interest differential, when the rates of the Czech National Bank were higher than the rates of the European Central Bank. The koruna became an attractive currency for investors, who bought it and thereby strengthened it. For this reason alone, direct payments to farmers fell by 11 percent, the study said.

The authors of the study admit the strong impact of subsidy changes (redistribution) on the economic condition of enterprises. However, they only partially contribute to the decline in the total income of farmers. Market influences played a significant role – for example, low crop prices, expensive energy, fertilizers, seeds, fuel or services.

An indicator of the economic situation of agricultural enterprises is the ČPH / AWU indicator, i.e. the amount of net added value (profit before deduction of wages, rent, rent and interest) in relation to the amount of work expended (the so-called annual working unit expresses the work of 2,000 hours per year by one employee). This indicator is used by the European Commission to measure the performance of farms, because it is more accurate than the comparison of net profit per hectare, where the picture is distorted by the fact that on the side of small farms they often do not pay wages to family members and larger farms have, for example, higher rent costs.

Everyone in the red

It turns out that market influences have a significant influence on the bad situation in agriculture. While an isolated comparison of subsidy income shows that farms up to 500 hectares have improved and larger enterprises are worse off, the ČPH / AWU indicator sent everyone “into the red”.

“We can say that all categories of businesses, whether small or large, are in the red. This is the reason why all the farmers are protesting in the streets,” says ÚZEI CEO Štěpán Kala.

Incomes of enterprises over 2,000 hectares decreased by 33.6 percent, the category of the smallest farms under one hundred hectares, when market effects are included, fell by 12.5 percent compared to 2022. In reality, farmers are even worse off than the study claims, because it does not take into account the sharp inflation. However, the authors do not hide this.

“The decline is determined by the drop in prices for cash crops and oilseeds (in the category of up to 100 ha, the share of these commodities is 41 percent of the total production and gradually increases to 80% in the case of the category of businesses over 2,000 ha),” the study states.

The authors admit a relatively strong effect of the redistribution payment, which was recommended to the Czech Republic by the European Commission as a tool to ensure income fairness between businesses of different sizes.

We fulfilled the government’s program statement in the field of leveling the conditions for small family farms. At the same time, there are negative impacts associated with it, which we knew about in advance.

Marek Výborný, Minister of Agriculture

Back in January, Minister of Agriculture Marek Výborný admitted changes in this payment, which according to him was one of the reasons that can demotivate medium-sized enterprises from 500 to 2000 hectares.

“The current set of subsidies can have a demotivating effect on medium and large farms. It’s certainly not the only reason, there are more problems,” he pointed to the overblown bureaucracy and also problems with aging farmers who have no successors.

The minister now insists that the government adjusted the subsidies correctly. “We fulfilled the government’s program statement in the field of leveling the conditions for small family farms. At the same time, there are negative impacts associated with it, which we knew about in advance. A significant drop with a negative effect on the economy is among medium-sized enterprises. The situation is worse for those who only have plant production, which is not labor-intensive,” he said.

At the same time, Výborný rejected considerations about capping subsidy income, which is promoted by the Association of Private Agriculture. If the Czech Republic were to limit subsidies to 100,000 euros per farm per year (roughly 2.5 million CZK), this would mean that the income of businesses over 1,136 ha would be significantly reduced. This would damage the middle class of agricultural enterprises, which produce the most vegetables, hops and also milk.

The article is in Czech

Tags: farmers red study subsidies Brussels blame

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